In this paper, we address the problem of the automatic authentication of paper currency. Indian banknotes are used to show how a system can be developed for discriminating counterfeit notes from genuine notes. Image processing and pattern recognition techniques are designed to carefully analyze embedded security features. Experiments conducted on forensic samples show that a high precision low cost machine can be developed to address this problem. The analysis of current security features’ ability to protect against counterfeiting also suggest topics that should be considered in designing future currency notes.